F&O Margin Calculator (India): SPAN, Exposure and Hedge Benefit

About the F&O Margin Calculator (India): SPAN, Exposure and Hedge Benefit

Before you buy or sell a futures or options contract on NSE, your broker blocks margin: the SPAN margin, NSE Clearing’s portfolio-based estimate of a bad day’s loss, plus the exposure margin — NSE calls it the extreme loss margin — and, for options you buy, the premium.

Enter each position with its lots, lot size and price, and the SPAN for one lot that your broker’s margin calculator or contract note shows. The calculator adds the exposure margin at the rates NSE Clearing publishes — 2% for index and 3.5% for stock derivatives, with the higher rates for deep out-of-the-money and long-dated short options and the extra 2% on expiry day — the premium for bought options, and the margin a hedge saves when you enter the SPAN for the whole basket. Nothing you enter leaves your browser.

Common uses

• Check before placing an order whether your account has enough margin.
• See how much a hedge saves when you sell options.
• Plan for the higher margin on expiry day.
• Compare the margin of a future with that of a sold option on the same index.

Exposure margin: NSE Clearing’s rates

NSE Clearing charges an extreme loss margin on every futures position and every sold option (NSE Clearing: margins):

• 2% of the notional value for index derivatives and 3.5% for stock derivatives;
• notional value: for a future, the contract value at the last traded or closing price; for a sold option, the value of the underlying index or shares at the last available close;
• calendar spreads of futures: on one third of the value of the far-month position, and nothing more for the near-month leg — until the near month expires for stock futures, and until the day before for index futures;
• sold index options more than 10% out of the money: 3%; sold index options with more than 9 months to expiry: 5%; sold stock options more than 30% out of the money: 5.25%;
• expiry day: an additional 2% on sold index options that expire that day.

The rates are editable under Exposure margin rates, should NSE Clearing change them.

How SPAN works

SPAN “determine[s] the largest loss that a portfolio might reasonably be expected to suffer from one day to the next day” (NSE Clearing: SPAN). Every day NSE Clearing publishes a risk-parameter file with a risk array for each contract: its gain or loss in 16 scenarios — the underlying unchanged, or up and down by a third, two thirds and all of the price scan range, each with volatility up and down, plus two extreme moves of twice the range, of which 35% counts. The worst scenario for the portfolio is the scanning risk.

The price scan range is six standard deviations scaled up by √2, at least 9.3% of the underlying price for index products and 14.2% for stock products (SPAN risk parameters). A calendar spread charge (1.75% of the far month for index, 2.2% for stock derivatives) covers positions in different expiries, and the net option value of bought options is set against the requirement. Because the scenarios are scored for the whole portfolio, a hedged position needs much less SPAN than its legs alone — which is why the basket figure matters.

Where the SPAN figure comes from

Brokers compute SPAN from NSE Clearing’s daily risk-parameter file. Their margin calculators show it per position and for a basket; the margin statement or contract note shows what was blocked. Enter the per-lot figure for each leg, and the basket figure if the positions hedge each other. This calculator does not read the risk-parameter file itself.

Why your broker may block more

• Additional margin for highly volatile stocks: where a stock moved more than 10% within a day on three or more days in a month, the total margin is at least that biggest intraday move (NSE Clearing).
• Delivery margin: stock derivatives settle by delivery, so near expiry brokers block margin on in-the-money positions.
• Mark-to-market losses on futures are collected every day, and brokers may add their own buffer.

Most individual traders lose money in F&O: SEBI’s study of individual traders in equity derivatives found close to nine in ten made a net loss in each year it covered. Size positions with the position size calculator and check what a trade costs with the brokerage calculator.

Limitations

• The SPAN figures are yours to enter: the calculator does not read NSE Clearing’s risk-parameter file, and SPAN changes every day with prices and volatility.
• Additional margins (volatile stocks, delivery margin near expiry, concentration) and your broker’s own buffers are not included.
• For NSE equity derivatives; currency, commodity and interest-rate derivatives have other rules.
• An estimate, not investment advice.

Privacy

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